06/10/25
News
Making Sense of Complex Change: Common Internal Audit Miscues to Avoid
3 Min Read
The financial industry is seemingly under constant disruption, including a significant reliance on digital solutions and online banking to meet customer needs. Credit unions and other financial institutions are continually adapting to shifting regulations, evolving technology and heightened cybersecurity threats while striving to maintain compliance and operational efficiency. In this dynamic environment, internal audit functions play a critical role in identifying risks and ensuring adherence to policies and procedures. However, even the most well-intentioned and prepared audit teams are guilty of common mistakes that undermine the effectiveness of an internal audit.
Financial institutions must recognize and address these frequent internal audit missteps to strengthen governance and mitigate risk. Below are some of the most common miscues that we have seen and strategies for avoiding them.
Insufficient Risk Assessments
Risk assessment is the foundation of an effective internal audit function. However, many institutions fail to conduct thorough, data-driven assessments, instead relying on outdated methodologies or gut instinct. As a result, audits may focus too heavily on low-risk areas while overlooking emerging threats. Clinging to old ineffective processes seems to be more of an issue with smaller financial institutions like neighborhood credit unions and similar organizations.
We recommend implementing a formal, structured risk assessment process that is regularly updated. Your processes should utilize data analytics to quantify risks and prioritize audit activities accordingly. In conducting your risk assessment, engage key stakeholders, outside of risk management and compliance teams, to ensure a comprehensive risk perspective.
Failure to Adapt to Regulatory Changes
Financial institutions operate in one of the most heavily regulated industries, with frequent updates from agencies such as the NCUA, CFPB and Financial Crimes Enforcement Network (FinCEN). Yet, it is common for many institutions to struggle to stay ahead of regulatory changes, leading to compliance gaps and potential penalties.
Regulatory changes should be one of the most important safeguards to adhere to, and it is critical to assign dedicated personnel to monitor regulatory updates and assess their impact. If unable to comply, there needs to be a process to identify noncompliance early, whether that be through compliance monitoring tools or manual processes. It could be costly to not comply. Employee education is critical and you should conduct ongoing training for audit and compliance teams to ensure they remain current.
Overreliance on Automated Processes
While automation can be useful to streamline operations, it should not replace critical thinking and analytical judgment, and these processes and automation need regular reviews to prevent oversight. Some audit teams become overly reliant on standardized processes, failing to assess the unique risks and nuances within their institution or update them to identify new threats or vulnerabilities.
Automation can be used as a starting point to reduce inefficiencies but audit procedures should be tailored to reflect institution-specific risks. Auditors should be curious and engage in discussions with frontline staff to gain deeper insights into operational challenges rather than just relying on automation. Maximize the value of your internal audit function and your protection, and foster a culture of continuous improvement by regularly revising audit programs.
Read the full article published by Credit Union Times.
Have a Question?
Complete this form to ask our professionals a question.
By submitting this form, you agree to be contacted by UHY.
PATRICK FARRELLY
Office Managing Partner, Capital Region, UHY LLPManaging Director, UHY Advisors
Patrick Farrelly provides a wide range of audit and assurance services including financial audit, forensic audit, compliance audit, reviews, compilations, internal control assessments and other accounting advisory services. In his role, he focuses on delivering the highest of quality services to publicly-held, otherwise regulated, and private businesses in the financial services, broker-dealer, manufacturing and distribution sectors. He has over a decade of experience managing and developing audit strategies for some of the most high profile clients at a Big Four firm.